TY - JOUR
T1 - The GARCH-stable option pricing model
AU - Hauksson, H. A.
AU - Rachev, S. T.
N1 - Funding Information:
The first author would like to thank B. Ranneby for helpful discussions. We would like to thank the Argonne Nat,ional Laboratory for developing and making available on the web the PGAPack software for implementing genetic algorithms on parallel computers. This software is available by anonymous ftp from f tp . mcs an1 .g ov in the file pub/pgapack/pgapack. tar.2. The optimization was implemented on an SGI Origin 2000 parallel computer, and for that we would like to thank the support of the National Science Foundation Grant CDA96-01954 and Silicon Graphics Inc. Furthermore, the first author would like to thank support from an AFSOR Grant Number F49620-95-1-0409 while he was a student in the Department of klathematics at. University of California at Santa Barbara.
PY - 2001/9/24
Y1 - 2001/9/24
N2 - An option pricing model is developed based on a generalized autoregressive conditional heteroskedastic (GARCH) asset return process with stable Paretian innovations. Our approach is based on the locally risk-neutral valuation relationship. Methods for maximum likelihood estimation of GARCH-stable processes are presented as well as empirical results for the DAX index. Finally, the results of Monte Carlo simulations evaluating prices of European call options, implied volatility, delta hedging parameters, and value at risk are presented.
AB - An option pricing model is developed based on a generalized autoregressive conditional heteroskedastic (GARCH) asset return process with stable Paretian innovations. Our approach is based on the locally risk-neutral valuation relationship. Methods for maximum likelihood estimation of GARCH-stable processes are presented as well as empirical results for the DAX index. Finally, the results of Monte Carlo simulations evaluating prices of European call options, implied volatility, delta hedging parameters, and value at risk are presented.
KW - GARCH-stable processes
KW - Locally risk-neutral valuation
KW - Option pricing
KW - Stable distributions
UR - http://www.scopus.com/inward/record.url?scp=0035943853&partnerID=8YFLogxK
U2 - 10.1016/S0895-7177(01)00127-3
DO - 10.1016/S0895-7177(01)00127-3
M3 - Article
AN - SCOPUS:0035943853
SN - 0895-7177
VL - 34
SP - 1199
EP - 1212
JO - Mathematical and Computer Modelling
JF - Mathematical and Computer Modelling
IS - 9-11
ER -